“Distribution of the shares of a company” represents only one (small) part of a larger process starting with the formation of the company and with the sale of the shareholders of his or her shareholders.their share ends. The next paragraph lists the sequence. (For a longer discussion, you could take a look at my book, The StartupChecklist.
- The company becomes legal as a C company (other types of companies, such as partnerships or LLC(Note).
similar to GmbH, do not have “shares”).
When a firm is set up whose certificates of incorporation, as in the case of submission to the competent regulatory authority, forms one or more “classes” of share capital, and how the division of shares has been broken down into those classes.
Immediately after the foundation, the company establishes the statutes governing how the company has to operate: how many members must be on the board, which employees the company will have, how decisions will be made, how many the shares will be distributed, Etc.
The first agenda is the definition of the board structure and the distribution of the shares of the founders (unless it is already done, while the company “exists”, it has no owners!).
In any case, the board adopts a “share grant” policy that essentially governs how “the Company agrees to sell X shares to founder Jane for USD 0.00001 per share.”
Jane then signs a share purchase agreement that sets out all the rules for the shares she acquires, including a Vesting plan that gives the Company the right to repurchase some or all of its shares if they place the Company in the should leave for the first few years.
Jane also usually signs a shareholder agreement in which all shareholders agree on various aspects of their shares, such as how they will elect the Board of Directors and who has the right to buy the shares if they decide to Decide to sell.
In most cases, the company also requires that if Jane is married, her spouse will sign a document, the spouse’s consent, in which he agrees to the things Jane has agreed to (only in the event that the shares are in the the spouse’s property.)
Jane (theoretically) pays for the shares she buys (although in many cases the total purchase price can be less than a penny, Jane and the company usually only record in one sentence in the corresponding documents in which the two parties agree that Jane paid and the company has received the amount.
The Company records the sale of shares in its capitalization table (commonly referred to as the “cap table”) as the final record of what belongs to whom.
[Until recently, the company usually gave Jane a stock certificate.
a fancy sheet of engraved paper representing the shares she buys, just like a dollar note as money she owns. Today, however, more and more start-ups have entered the 21st century and are issued “uncertified” shares, with the company’s cap table serving as the final record of their holdings, just like a checking account entry as a final record. for their money in the bank. This makes life much easier for everyone.
This is the process of distributing shares of a company to its founders.
But what happens when the company starts hiring employees? Then a second sequence begins:
The Board of Directors adopts an incentive stock option plan.
These are a set of rules under which the Company agrees to take a percentage of its shares (usually 10-20%) available as an incentive for employees who will work hard for the company.
When an employee is hired, the Company issues a letter of offer specifying how many shares the employee is granted as an option to buy (in the future, if the company’s shares are more valuable, but at today’s price.)
The Board of Directors appoints an independent reviewer to determine the market value of the company (this is called the “409A valuation” based on the section of (US) Tax Office Rules for which this is required.)
The Board of Directors decides to grant the options to the employee.
The employee receives and signs the option grant (including a (Vesting) exercise agreement), similar to how Jane had signed the share grant.
Time passes, and with each day she is employed in the company, her respective exercise is continued (the employee is given the right to exercise more and more of his options, and for Jane, who has a reverse (vesting) exercise, loses the companies to buy back their shares at their original cost.)
If the company is ultimately sold (after the blocking period has expired), Jane’s shares will be acquired by the buyer along with the shares of everyone else.
However, the employee must first complete their options before they can sell them.
However, since he has the option to buy his shares at an older, lower price (about 1.00 USD) and the buyer of the company today pays a higher price (about 10.00 USD), the employee is happy to do so. (In practice, the company usually allows a “cashless exercise” of options, so that the employee receives only the net value of USD 9.00.)
If the company is not acquired but makes an initial public offering (IPO), the shares of Jane and the employee are treated as described above, except that they can optionally keep them until they are ready to sell through the public exchange.
Since this is often associated with a significant amount of money (everyone hopes so!), it is extremely important that all the above steps are carried out in exactly the right way.Otherwise, you may end up in an awkward situation (see The Social Network).
The good news, however, is that there are now ways to do all these things correctly and automatically.to be done. With a company as a service platform like Gust Launch (developed by Gust, whose CEO I happen to be), the entire process can be done in a few minutes starting at USD 300.It took us over five years and a lot of billions of dollars to build it all up, but I wish it existed when I started!